On 1 November 2018, the 2018 Administered Arbitration Rules (“2018 Rules”) of the Hong Kong International Arbitration Centre (“HKIAC”) came into effect. This is the third version of the rules, and comes some five years after the 2013 Rules were introduced.
The 2013 Rules were a comprehensive overhaul of the 2008 Rules and introduced several new and innovative provisions, including those relating to joinder, consolidation and tribunal fees. The 2018 Rules incorporate subtler but nonetheless important changes which refine and improve on the 2013 Rules, as well as new provisions to address recent developments in the practice of arbitration, such as third party funding and the use of technology.
This article summarises key changes in the 2018 Rules.
Provisions relating to emergency arbitration were first introduced in the 2013 rules, and they have proven to provide, in appropriate cases, an important arsenal in protecting the rights of parties. The 2018 Rules have been updated to provide speedier recourse for parties seeking emergency relief.
The 2018 Rules allow a party to appoint an emergency arbitrator before the filing of a Notice of Arbitration (Paragraph 1(a), Schedule 4, 2018 HKIAC Rules. This provision does not apply to arbitrations commenced under arbitration agreements concluded before 1 November 2018 unless the parties have agreed otherwise: see Article 1.5.) This is a significant improvement from the 2013 Rules, under which a party could only apply for the appointment of an emergency arbitrator at the same time as the filing of its Notice of Arbitration, or later (Paragraph 1, Schedule 4, 2013 Rules).
The ability to seek emergency relief before filing the Notice of Arbitration means that a party who seeks such relief will not be held up by the need to finalise their Notice. This can be useful where, for example, a claimant requires more time to confirm which arbitrator it wishes to designate in its Notice. Under such circumstances, the claimant can submit its application for emergency arbitration first, while it concurrently finalises the identity of its proposed arbitrator.
The 2018 Rules also provide that if HKIAC decides to accept an emergency arbitrator application, HKIAC shall seek to appoint the arbitrator within 24 hours (Paragraph 4, Schedule 4, 2018 Rules) – which is shorter than the two days provided for under the 2013 Rules.
The combination of the right to seek the appointment of an emergency arbitrator before the submission of a Notice of Arbitration and the 24-hour turnaround time for appointing an emergency arbitrator enhances the attractiveness of the 2018 Rules to parties requiring urgent relief. (The 2017 ICC Rules also permit a party to apply for the appointment of an emergency arbitrator before the submission of a request for arbitration. However, those rules provide for the appointment of an emergency arbitrator “within as short a time as possible, normally within two days” from receipt of the application. On the other hand, the 2016 SIAC Rules provide for the appointment of an emergency arbitrator within one day of receipt of the application and administration fee and deposits. However, those rules do not permit a party to apply for the appointment of an emergency arbitrator before the submission of a Notice of Arbitration.)
To ensure there is no undue delay in commencing the arbitration following an emergency arbitrator application, the 2018 Rules also provide that the emergency arbitrator procedure will be terminated if the applicant fails to submit a Notice of Arbitration to HKIAC within seven days of HKIAC’s receipt of the emergency arbitrator application, unless this time limit is extended (Paragraph 21, Schedule 4).5
Capped emergency arbitrator fees
The 2018 Rules also provide that unless the parties agree or HKIAC determines otherwise in exceptional circumstances, the emergency arbitrator’s fees shall not exceed the amount set by HKIAC. (At the time of publication, the HKIAC website stated that the total fees of an emergency arbitrator were not to exceed HKD 200,000.) This introduction of a cap on the emergency arbitrator’s fees will help parties to better anticipate the costs that they can expect to incur in an emergency arbitration.
Clearer test for emergency relief
The 2018 Rules also clarify that the provisions which apply to the imposition of interim measures by the arbitral tribunal, including those relating to the factors which the tribunal may take into account in deciding whether to impose interim measures, also apply to any emergency relief granted by the emergency arbitrator (Paragraph 11, Schedule 4). This helps provide greater certainty on this important question.
PROCEEDINGS INVOLVING MULTIPLE CONTRACTS AND ARBITRATIONS
Disputes involving multiple contracts and/or multiple arbitrations can raise complex issues. Where there are multiple arbitrations, there can be the risk of inconsistent findings. A party’s case in one arbitration may largely turn on the outcome of another related arbitration, raising the issue of how both arbitrations should be managed and whether both should be heard together, or one immediately after the other. Any attempt to have a dispute involving multiple contracts heard in a single arbitration may also raise questions of whether all parties concerned have consented to arbitration involving all other parties.
The 2018 Rules provide a comprehensive menu of options and tools for managing such disputes, further improving upon the relevant provisions which were first introduced in the 2013 Rules.
Under a new provision in the 2018 Rules, where the same arbitral tribunal is constituted in more than one arbitration, and a common question of law or fact arises in all of the arbitrations, the arbitral tribunal may, after consulting with the parties, conduct the arbitrations at the same time, or one immediately after another, or suspend any of those arbitrations (Article 30.1).
The 2018 Rules do not require the arbitrations to involve identical parties, or require the parties to specifically consent to the exercise of these powers. Instead, the Rules only require the arbitral tribunal to consult with the parties beforehand. Further, the tribunal may exercise these powers on its own motion, absent a request from the parties.
It is worth noting that the prerequisites for the exercise of these powers are broader than the prerequisites for the consolidation of arbitrations under the 2018 Rules. (Under the Rules, HKIAC may consolidate an arbitration at the request of a party, and after consulting with the parties and any confirmed or appointed arbitrators, where (a) the parties agree to consolidate; (b) all of the claims in the arbitrations are made under the same arbitration agreement; or (c) the claims in the arbitrations are made under more than one arbitration agreement, a common question of law or fact arises in all of the arbitrations, the rights to relief claimed are in respect of, or arise out of, the same transaction or a series of related transactions and the arbitration agreements are compatible.) So, where there are a set of arbitrations which do not satisfy the conditions for a consolidation, it may nonetheless be possible to hold the proceedings concurrently or one immediately after the other, or to suspend one arbitration pending the determination of the other.
The 2018 Rules also provide that claims arising out of or in connection with more than one contract may be made in a single arbitration (Article 29) – there is no longer the requirement that all parties to the arbitration are bound by each arbitration agreement giving rise to the arbitration (as was required under the 2013 Rules). This is sensible and consistent with the fact that the 2018 Rules (and the 2013 Rules) do
not preclude the consolidation of two arbitrations even if the parties to one arbitration are not bound by the arbitration agreement underlying the other arbitration.
EARLY DETERMINATION PROCEDURE
The 2018 Rules introduce a potentially significant new procedure for parties to seek an order or award from the arbitral tribunal on specific points of law or fact before the final award is rendered (Article 43). (This provision does not apply to arbitrations commenced under arbitration agreements concluded before 1 November 2018 unless the parties have agreed otherwise: see Article 1.5.)
Parties can now ask the arbitral tribunal to apply an early determination procedure to decide one or more points of law or fact, on the basis that (Article 43.1):
(a) such points of law or fact are manifestly without merit;
(b) such points of law or fact are manifestly outside the arbitral tribunal’s jurisdiction; or
(c) even if such points of law or fact are submitted by another party and are assumed to be correct, no award could be rendered in favour of that party.
A request for the arbitral tribunal to apply the early determination procedure must include, among other things, a statement of the facts and legal determination supporting the request, a proposal of the form of early determination procedure to be adopted by the arbitral tribunal and comments on how the proposed form would achieve the objectives under Articles 13.1 and 13.5 of the Rules, including avoiding unnecessary delay or expense, ensuring equal treatment of the parties and affording the parties a reasonable opportunity to present their case, and ensuring the fair and efficient conduct of the arbitration (Article 43.4).
Parties can generally expect any request for early determination to be disposed of by the arbitral tribunal within 90 days from the date of the request, or earlier, if the tribunal decides not to grant the request for early determination. (The 2016 SIAC Rules adopt a similar approach. Where a SIAC tribunal has decided to allow an application for early dismissal of a claim or defence to proceed, the tribunal is required to make an order or award within 60 days of the date of filing of the application. On the other hand, the summary procedure provisions in the 2017 SCC Rules do not stipulate fixed timelines, only requiring the arbitral tribunal to make its order or award on the issues under consideration in an efficient and expeditious manner. Similarly, the 2017 Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration provides that the arbitral tribunal shall decide an application for the expeditious determination of any claims or defences as promptly as possible.)
The early determination procedure is an important addition to the 2018 Rules which brings the Rules in line with other leading arbitral institutions that offer similar procedures in their rules. The availability of such a procedure will provide parties and tribunals with another tool to promote the efficient and effective conduct of arbitrations.
DISCLOSURE OF THIRD PARTY FUNDING
The amendments to Hong Kong’s Arbitration Ordinance (Cap. 609) permitting third party funding in arbitration came into force on 1 February 2019. These amendments pave the way for third party funding to become an increasingly important part of the arbitration landscape in Hong Kong.
It is therefore timely that the 2018 Rules require parties to disclose the existence of any funding agreement and the identity of any third party funder. Parties are also required to disclose any changes that occur after the initial disclosure (Article 44.3). Unlike the legislative amendments, under the 2018 Rules, these requirements will also apply to foreign-seated arbitrations.
Other changes in the 2018 Rules relating to third-party funding include (a) a carve-out in the confidentiality provisions expressly permitting parties to disclose information to a person for the purpose of having or seeking third party funding (Article 45.3(e)); and (b) a provision expressly permitting arbitrators to consider third party funding arrangements when determining costs (Article 34.4).
OTHER IMPROVEMENTS TO INCREASE EFFICIENCY
The 2018 Rules incorporate several other changes intended to promote the efficient conduct of arbitrations.
These include provisions requiring arbitral tribunals to issue their awards within three months from the close of the entire proceedings or the relevant phase of the proceedings (Article 31.2). Once proceedings are declared closed, tribunals are also required to inform HKIAC and the parties of the anticipated date of issuance of the award (Article 31.2). These user-friendly measures provide much-needed certainty to parties on when they can expect to receive the award, and impose greater accountability on arbitral tribunals.
The 2018 Rules also expressly provide for the use of secured online repositories for written communications among the parties, the arbitral tribunal and/or HKIAC (Article 3.1). This recognizes the increasingly electronic nature of document exchanges in international arbitrations.
PRACTICE NOTE ON APPOINTMENT OF ARBITRATORS
The HKIAC’s Practice Note on Appointment of Arbitrators also came into force on the same date as the 2018 Rules, on 1 November 2018. The Practice Note sets out HKIAC’s general practice on the appointment of arbitrators, including the factors that HKIAC will consider when appointing an arbitrator.
The Practice Note clarifies that where the parties are of different nationalities, HKIAC generally will not appoint a sole or presiding arbitrator of the same nationality as any of the parties unless the parties expressly agree otherwise.
However, the Practice Note also states that, considering Hong Kong’s status as a Special Administrative Region with a legal system separate from that of mainland China, in cases in which at least one party is from mainland China, the holder of a Hong Kong passport may be appointed as sole or presiding arbitrator, provided that none of the parties object within a time limit set by HKIAC.
The 2018 International Arbitration Survey on “The Evolution of International Arbitration” by Queen Mary University of London named Hong Kong as one of the five most preferred seats of arbitration, and the HKIAC as one of the five most preferred arbitral institutions. 80percent of the survey’s respondents also considered arbitral institutions to be best placed to influence the future evolution of international arbitration.
The 2018 Rules reinforce HKIAC’s contributions to the future evolution of international arbitration, and demonstrate HKIAC’s continuing drive to innovate and improve to address its users’ need for efficient and cost-effective arbitration of increasingly complex disputes.